us army corps of engineers building strong ® practical applications of risk analysis during design...
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US Army Corps of Engineers
BUILDING STRONG®
Practical Applications of Risk Analysis During Design and Construction
Steve Farkus, PE, PMP, Tim Mather, PMP Herschel Baxi, PMPand Eric Lowther, PMP. LEED AP
Louisville District and PMA Consultants LLC May 2011 PPM CoP Conference
ID # 36
BUILDING STRONG®
Overview
The nation-wide Army Reserve Construction Program
Customer: Army Reserve Installation Management Directorate (ARIMD)
Project Phases: Design and Construction
2
Overview Template - 2011 PPM CoP Conference
BUILDING STRONG®
BLUF
We can best manage Customer expectations when we clearly spell out risks.
Customer accountability will increase when risk is understood.
Our Purpose Today – Inform our audience about quantitative techniques we can use to communicate more clearly.
Communicate Risk and You Manage Expectations
BUILDING STRONG®
Risks to Consider
During P&D:
► How confident are we in our construction cost estimate?
► When will we be RTA?
During Construction :
► How confident are we in the contractor’s schedule for completion?
What are our Greatest Risks?
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Key Processes (PMBOK)*:
Risk Management Planning
Risk Identification
Qualitative Risk Analysis
Quantitative Risk Analysis
Risk Response Planning
Risk Monitoring and Control
Risk Management
*Source: A Guide to the Project Management Body of Knowledge, Chapter 11
Measuring the probability and consequences of risks and estimating their implications for project objectives.
Measuring the probability and consequences of risks and estimating their implications for project objectives.
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Simulation in Risk Management
How to use Simulation in Risk Management
What is Monte Carlo?
Where did it come from?
How does it work?
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Simulation in Risk Management
How to use simulation
► Create a model of the critical activities/costs
► Assign three possible durations to each activity or three possible costs to each cost
► Run a simulation (Monte Carlo)
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Simulation in Risk Management
What is Monte Carlo?
Definition: Monte Carlo is the art of approximating an expectation by the sample mean of a function of simulated random variables
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Simulation in Risk Management
Where did Monte Carlo come from?
► Enrico Fermi invented the method while playing solitaire during a convalescence.
► Further developed when working on the Manhattan Project working on calculating potential range of neutron diffusion
► Named Monte Carlo because they needed a code name
► Named after the famous casino in Monaco
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How Simulation Works
A
B
E
C
F
D
H
G
4 days
8 days 10 days
10 days
2 days
5 days
5 days
10 days
8 days
4 6 10OPTD MOST PESS
8 10 15OPTD MOST PESS2 4 7
OPTD MOST PESS
1 2 4OPTD MOST PESS
4 5 9OPTD MOST PESS
6 8 15OPTD MOST PESS
8 10 20OPTD MOST PESS
5 8 12OPTD MOST PESS
7 10 16OPTD MOST PESS
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Iteration Number 1
A
B
E
C
F
D
H
G
4 days
8 days 10 days
10 days
2 days
5 days
5 days
10 days
8 days
4 6 10OPTD MOST PESS
8 10 15OPTD MOST PESS2 4 7
OPTD MOST PESS
1 2 4OPTD MOST PESS
4 5 9OPTD MOST PESS
6 8 15OPTD MOST PESS
8 10 20OPTD MOST PESS
5 8 12OPTD MOST PESS
7 10 16OPTD MOST PESS
7
RNG
5
RNG
1
RNG
9
RNG
11
RNG
4RNG
9
RNG
14
RNG
11
RNG
Completion of “H” (A-B-C-D-H): 38 days
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A
B
E
C
F
D
H
G
4 days
8 days 10 days
10 days
2 days
5 days
5 days
10 days
8 days
4 6 10OPTD MOST PESS
8 10 15OPTD MOST PESS2 4 7
OPTD MOST PESS
1 2 4OPTD MOST PESS
4 5 9OPTD MOST PESS
6 8 15OPTD MOST PESS
8 10 20OPTD MOST PESS
5 8 12OPTD MOST PESS
7 10 16OPTD MOST PESS
6RNG
5RNG
3RNG
11RNG
9RNG
3RNG
7RNG
8RNG
11RNG
Completion of “H” (A-B-C-D-H): 31 daysIteration Number 2
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A
B
E
C
F
D
H
G
4 days
8 days 10 days
10 days
2 days
5 days
5 days
10 days
8 days
4 6 10OPTD MOST PESS
8 10 15OPTD MOST PESS2 4 7
OPTD MOST PESS
1 2 4OPTD MOST PESS
4 5 9OPTD MOST PESS
6 8 15OPTD MOST PESS
8 10 20OPTD MOST PESS
5 8 12OPTD MOST PESS
7 10 16OPTD MOST PESS
7RNG
5RNG
1RNG
8RNG
9RNG
4RNG
12RNG
6RNG
16RNG
Completion of “H” (A-B-F-H): 32 daysIteration Number 3
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Simulation in Risk Management
Simulation can be an effective tool to evaluate a range of possible outcomes
The output is only as good as the input
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Cost Risk
Basic Steps in a Cost Risk Assessment
► Identify and Rank Risks
• All risks not modeled► Review A/E’s estimate
• Don’t double dip on contingency
What is the Cost Risk Modeling Process?
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Cost Risk (cont.)
► Range and Model cost risks
• Include key stakeholders• Some risks may apply to project costs• Monte Carlo modeling
► Report
• Communicate to stakeholders
What is the Cost Risk Modeling Process?
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Cost Risk – Identify Your Risks
A Project Has Many Risks
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Cost Risk – Identify Your Risks
A Project Has Many Risks
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Cost Risk – Rank Your Risks
Risks With Most Impact Selected for Cost Risk Assessment
Risk No. Probability Impact Risk Impact
Risk Rank Cost Element Description A/E Estimate
R12 High High HH 1Facility operations may impact planned availability of construction zones increasing duration of work. $150,000
R4, R10 High High HH 2
Finished tenant interiors may be exposed to elements causing rework leading to increase in project costs. $125,000
R9 High Moderate HM 3Staging and access coordination with roof replacement contractor could delay construction within building interiors. $75,000
R14 High Moderate HM 4 Fireproofing $60,000
R1 Moderate High MH 5Additional quantities of hazardous materials remediation could increase construction costs. $50,000
R3 High Moderate HM 6 Lane closure limitations may interrupt supply of materials $50,000
R6 High High HH 7Corrosion of steel support system behind metal fascia may require additional rehabilitation $50,000
R5 Moderate High MH 8 Modifications to scaffolding to complete equipment relocation $25,000
R11 Moderate Moderate MM 9 Identity and background check requirements $25,000
R13 Moderate Moderate MM 10 Utility relocations $25,000
R7 High High HH 11 CMU replacement in parapet $10,000
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Cost Risk – A/E Estimate Review
Review the A/E’s Estimate
► Review for built in contingencies
• Lump sum line items• % age of sub totals• Quantity / Unit Price
► Cost Risk Assessment develops contingency at the project level based on risks
• No double dips
The A/E Estimate may have contingencies built in
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Cost Risk - Modeling
Range and Model the Costs
► Optimistic, Pessimistic, Most Likely
► Project team input
► Model using Monte Carlo
Estimate a range of the impact of risks
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Cost Risk – Modeling Sample
Project Team Assesses Optimistic, Most Likely, Pessimistic
Risk No. Probability Impact Risk Impact
Risk Rank Cost Element Description Optimistic Most Likely Pessimistic
R12 High High HH 1Facility operations may impact planned availability of construction zones increasing duration of work. $100,000 $150,000 $200,000
R4, R10 High High HH 2
Finished tenant interiors may be exposed to elements causing rework leading to increase in project costs. $75,000 $125,000 $175,000
R9 High Moderate HM 3Staging and access coordination with roof replacement contractor could delay construction within building interiors. $50,000 $75,000 $250,000
R14 High Moderate HM 4 Fireproofing $0 $60,000 $120,000
R1 Moderate High MH 5Additional quantities of hazardous materials remediation could increase construction costs. $0 $50,000 $100,000
R3 High Moderate HM 6 Lane closure limitations may interrupt supply of materials $0 $50,000 $50,000
R6 High High HH 7Corrosion of steel support system behind metal fascia may require additional rehabilitation $0 $50,000 $100,000
R5 Moderate High MH 8 Modifications to scaffolding to complete equipment relocation $0 $25,000 $25,000
R11 Moderate Moderate MM 9 Identity and background check requirements $25,000 $25,000 $40,000
R13 Moderate Moderate MM 10 Utility relocations $25,000 $25,000 $50,000
R7 High High HH 11 CMU replacement in parapet $0 $10,000 $25,000
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Cost Risk – Modeling & Reporting
Model
► Software runs many iterations of selected risks impacting the project
Report
► Probability of delivering within approved budget
► Risk-based project contingency
► Meaningful statistical analysis on risks
Communicating to Stakeholders
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Cost Risk – Reporting Samples
Reports Communicate Impact of Risks on Cost
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Cost Risk – Reporting Samples
Reports Communicate Impact of Risks on Cost
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Cost Risk – Additional Take-Aways
A/E Estimate is not total project cost
► Risks can apply at a project level
• Procurement process• Environmental complexities
Develop Historical Information
Scalable Process
Cost Risk Assessments Enhances Project Management
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Conclusion
Simulation is a valuable tool in the toolkit of every project manager
It’s important to create an accurate model and range for each activity or cost.
Not a panacea
BUILDING STRONG®
Summary
We can best manage Customer expectations when we clearly spell out risks.
Customer accountability will increase when risk is understood.
Our Purpose Today – Inform our audience about quantitative techniques we can use to communicate more clearly.
Communicate Risk and You Manage Expectations
BUILDING STRONG®
Questions?
Pay Attention to Risk and the Table is Set for Success